Consolidating Credit Card Debt–How do you do it? Is it worth it?
Many people are overwhelmed when they realize that they are in over their heads in credit card debt. Whether they ran into financial troubles and had to depend on credit cards, or they transfer credit card balances and end up with high interest rates, something must be done to solve the financial problem. Debt consolidation is one of the ways that credit card customers use to get out of financial ruins. Consider the options for consolidating debt before making a decision.
Benefits of Consolidating Credit Card Debt
Consolidating debt is a way of combining all credit card debts. The consolidation process creates one monthly bill and lowers the payment to a reasonable amount of money. Many consumers choose debt consolidation for the many benefits that it offers, including:
- The process prevents additional fees from accumulating. Once debts are consolidated, cardholders do not have to worry about additional monthly and yearly fees—such as late fees, over-the-limit fees, and annual fees-that add on to the existing credit card debt. Cardholders may have to pay a reasonable fee to the debt consolidation company that provides the service.
- Debt consolidation reduced the interest rates on existing credit card debt. Cardholders could be paying interest rates in the upper 20% range or higher on credit card debt. Debt consolidation companies may offer cardholders an interest rate that is the average of all the current interest rates or lower to help eliminate the debt quickly.
- Cardholders get a chance to save their credit and make their lives easier. When cardholders have difficulty paying their debts, it can hurt their credit. Debt consolidation prevents further damage to credit. Customers make one monthly payment instead of numerous payments each month.
How to Consolidate Credit Card Debt
Cardholders must begin their quest by researching the best debt consolidation company in their area. A local company allows cardholder the opportunity to sit down with them and meet in person. If there are problems, cardholders can set up a meeting to discuss the matter instead of trying to track down someone over the phone. Going with a reputable company can save cardholders a great deal of time.
Once cardholders select the right debt consolidation company, the process can begin. The process begins with the debt consolidation company evaluating the current financial situation. They evaluate all of the credit cards, determine the current interest rates, and negotiate the monthly payment to a lower amount that the cardholders can manage. The length of the loan is extended, and cardholders pay the decided amount directly to the debt consolidation company, who pays the debt to the creditors.
Cardholders are usually expected to pay some form of collateral to secure a debt consolidation loan. Some choose to get a home equity loan to pay off the credit card debts instead of going through a debt consolidation company. In this case, the home is used for collateral. In the event the loan is not paid, the home is used to pay off the debt. This is a risky option because cardholders can lose their homes.
Tips on Consolidating Credit Card Debt
- Do not increase the monthly debt. Reducing debt may create additional money in the cardholders’ pocket each month. Do not apply for additional credit and max out those credit cards. Take the additional money saved and place it in a savings account or send extra money to the debt consolidation company to pay off the debts faster.
- Research the credit card companies that accept debt consolidation. Not all credit card companies accept the program. Cardholders may be left with some debt that cannot be consolidated. Make sure that other options are considers to repay the debt that could not be consolidated.
- Make sure that the debt consolidation company does not charge extreme fees. Debt consolidation companies generally charge fees for their services. Negotiate the fees to come out with the monthly payments or at the end of the consolidation process. Cardholders should not pay expensive fees up front for services.
- Cardholders should go with companies that are recommended by others. Those who have gone through a debt consolidation program can offer good advice to someone who is about to go through the process. They can give insight to the process so that it goes smoothly.
Debt consolidation is a great way to pay off existing credit card debt. The process helps cardholders to save their credit so that they have good financial futures. Debt consolidation is one of the many options available to cardholders who run into financial problems.